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Macro-environment analysis is a review of external factors that a company cannot control, including political, economic, social, technological, environmental, and legal aspects. The PESTEL framework is a common tool for this analysis, and the ultimate goal is to create a strategy that leverages external factors in favor of the company. Political, economic, social, technological, environmental, and legal factors are all important to consider in this analysis.
Macro-environment analysis is a review of all the factors that a company cannot control. Companies conduct this analysis to stay abreast of the issue in the current economic environment. A common tool for conducting a macro-environment analysis is the PESTEL framework, which includes factors related to political, economic, social, technological, environmental and legal aspects in the business environment. The ultimate goal of this analysis is to create a strategy that leverages as many of these external factors as possible in favor of the company.
Political factors in the PESTEL analysis include current government stability, social security policies imposed on companies, trade tariffs or regulations limiting international trade and tax policies on corporate profits. This information is quite important for businesses, as extremely difficult political situations often result in lower profits and a more flexible business environment. This type of analysis can focus heavily on political factors in countries with challenging working environments.
The external factors group for this analysis comes from the economic factors within a country. Companies are unable to control issues such as income of market buyers, available credit offered by banks, unemployment, interest rates and inflation encountered in the economic market. These factors can also affect society, reducing its purchasing power from currency, available credit and inflation, which makes it more difficult for society to carry on normal business operations.
Social factors included in the macro-environment analysis include demographics, wealth distribution, lifestyles and consumer education. Each of these factors will determine how a business interacts with consumers. Lower education among consumers, for example, will often lead the company to create marketing campaigns that are easily understood by the majority of the population. Lifestyle changes often occur with changes in the economy, forcing the company to change the quality and/or price of goods.
Technological factors of macro-environment analysis include new innovations, the frequency of technological changes, and new platforms or software used by businesses and consumers. Failing to keep up with technology can put a company behind its competitors. Consumer product changes will also drive this change, as consumers will have certain technology expectations from the products a company offers.
Environmental factors include the elements that affect the common living area around the business and its consumers. Energy consumption, maintaining a livable environment, waste disposal and other elements can affect the natural environment surrounding a business. Businesses need to be aware of changes to these laws that can change the way they interact with the environment. Macro-environment analysis should focus on this aspect as consumers become more aware of the effects of businesses on the environment.
Legal factors include regulations relating to competition, employment, health and safety or matters. Owners and managers must be aware of these laws to prevent lawsuits. Changes in the law compared to current cases can also affect the way a company does business.
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